Philips announces 2.8 billion euro profit drop

While most analysts expected Philips to announce disappointing results, almost no one had thought they would be this devastating. The Dutch electronics giant suffered a net loss of 1.3 billion euro in 2011 and expects that at least the first half of 2012 will not be much better.

Discontinued operations cost dearly

After 2010's 1.45 billion euro profit, the 1.29 billion loss of 2011 is a
bitter disappointment. A similar evolution was made in the fourth
quarter, going from +465 million in 2010 to -160 million last year.
Philips mainly blamed a “higher loss from discontinued operations” and
the struggle to sell the Television division to the Chinese manufacturer
TPV Technology, with whom Philips are starting a joint venture. Even
the divisions Healthcare and Lighting – usually strongholds – have
underperformed in 2011.

There was still time for positive news, as the quarterly turnover grew
to 6.7 billion euro (compared to 6.5 billion in the last quarter of
2010) and annual turnover reached 22.6 billion euro (slightly better
than 2010's 22.3 billion). Operational profit, however far smaller than
in 2010, was not below expectations at 503 million for the last quarter
(913 million in 2010) and 1.7 billion for the whole year (2.6 billion in
2010).

Counting on job cuts to pay off

Philips had already issued a profit warning on 10 January, saying that
the fourth quarter of 2011 would be “disappointing”. CEO Frans Van
Houten now warned that the first half of 2012 will not be better, given
the “uncertainty in the global economy, and Europe in particular.”

Focussing on Philips itself, he expects “2012 results to be affected by
the previously communicated restructuring charges and one-time
investments aimed at improving our business performance trajectory, as
part of the multi-year Accelerate! Program.” Philips will cut 4500 of
its 117,000 jobs this year, especially in the Netherlands, where 10% of
all jobs will be lost.

Van Houten hopes these cuts will lead to “the underlying operating
margins and capital efficiency in the sectors to improve in the latter
part of 2012.” Philips hopes to reach a profit margin of 10% next year,
compared to 11.5% in 2010, but only 7.4% in 2011.

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